The impact of social capital on the ability of households’ access to credit services in rural Vietnam

Abstract

Social capital plays a crucial role in assisting rural households to improve incomes. It is, therefore, necessary to conduct research to find ways improving the ability of households' access to credit services. This paper investigates the impact of social capital on the ability of households' access to formal and informal credit services in rural areas in Vietnam. In the research model, social capital is proxied by the number of household members participating in mass organizations and social groups. Univariate Probit and Bivariate Probit models are applied, with data collected from three waves of Vietnam Access to Resources Household Survey - VARHS (2014, 2016 and 2018). The estimation results indicate that the number of household members participating in mass organizations and social groups positively affects the ability of households' access to both formal and informal credit services. The results are robust when changing the sample. The study also proves that for rural households, formal credit and informal credit are interchangeable. One policy implication from the findings of the study is that rural population should be given more favourable conditions to join mass organizations and social groups to improve access to credit services. Another implication is that sources and forms of formal credit should be diverse so that rural households are able to increase access to formal credit and decrease access to informal credit.